COLLECTED WISDOM™ on 401k Hardship Withdrawals
This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.
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Hardship distributions are a valuable component of many 401k retirement plans. They encourage participation in the plan and provide a sense of security to participants as they seek a balance between retirement savings and current financial needs. But plan sponsors need to know the rules and administer hardship withdrawals carefully.
Changes to Hardship Withdrawal Administration From the SECURE 2.0 Act
Plan sponsors of retirement plans with hardship withdrawal provisions have come to realize that complying with hardship rules is sometimes a hardship. Luckily, the SECURE 2.0 Act in Section 312 has provided relief to those plan sponsors that administer hardship withdrawals by relying on written certification.
Source: Belfint.com, May 2023
SECURE 2.0: New, Penalty-Free Distributions
Life is a balancing act. Regulators strive to fight leakage by imposing penalties on early distributions, but they also don't want to add to legitimate unforeseen and extreme emergencies by imposing penalties when participants are in trouble. At the same time, regulators don't want to impose administrative burdens that would be a deterrent from offering a plan, so most of the new distribution options are optional.
Source: Belfint.com, April 2023
Hardships Becoming Even Less Hard to Take
SECURE 2.0 has provided several opportunities for plan administrators to assist participants in tackling emergency expenses. Two of these provisions updated the administration of hardship withdrawals to plan participants.
Source: Graydon.law, March 2023
401k Loans and Hardship Withdrawals Decreasing: Report
Newly released data from year-end 2022 shows that the volume and dollar amount of 401k loans and hardship withdrawals decreased, but there were some nuances to the findings. In a new quarterly report that draws on data from more than three million 401k plan participants, Bank of America's 401k Participant Pulse report reveals that fewer participants took hardship withdrawals for immediate financial needs.
Source: Napa-net.org, February 2023
SECURE 2.0: Emergencies, Hardships, and Disasters
Among the many changes within SECURE 2.0 is increased flexibility for participants to access certain retirement plan accounts when faced with qualifying emergencies, hardships, and disasters.
Source: Benefitslawadvisor.com, February 2023
Record Number of 401k Hardship Withdrawals Seen in 2022
Inflation and higher prices overall are causing more Americans to take 401k hardship withdrawals. The Wall Street Journal, citing Vanguard research, reported that a record 2.8% of the five million people in 401k plans run by the investment behemoth tapped their retirement savings in 2022 for financial hardship reasons. It's an increase from 2.1% in 2021 and a pre-pandemic average of about 2%.
Source: Napa-net.org, February 2023
Vanguard Expert Offers Tips on Hardship Withdrawals
Hardship withdrawals from retirement accounts are on the rise, and advisors, investors, and plan administrators need to know the options. Spiking inflation coupled with a sinking stock market has forced more investors to tap their retirement savings for cash. Fiona Greig, a leading expert in household finance, has a front-row seat to the unfolding crisis in her position as the global head of investor research and policy in Vanguard's investment strategy group.
Source: Investmentnews.com, January 2023
Loans and Hardship Withdrawals From 401ks on the Rise
More Americans are tapping their 401ks for financial emergencies, with the percentage of retirement savers pulling money for hardships spiking 24% in the 12 months through Sept. 30, according to new data.
Source: Investmentnews.com, November 2022
What Kind of Payments Can a Hardship Request Cover When Buying a Home?
Can a hardship request cover costs directly related to the purchase of a principal residence for the employee including the payoff of outstanding debts if that is what is required for the participant to qualify for the mortgage loan? Experts from Groom Law Group and CAPTRUST answer the question.
Source: Plansponsor.com, November 2022
Can Participants Certify Electronically That They Have a Financial Need for Which a Hardship Distribution Can Be Made?
If you carefully follow a procedure authorized by the IRS in 2017, your plan could elect to have participants provide summaries instead of the source documents that substantiate their immediate and heavy financial needs. This article outlines the procedure and then reviews the rules that led to your current practice.
Source: Thomsonreuters.com, October 2022
Do's and Don'ts of Hardship Distributions
Given the current economic climate, a greater number of participants may be requesting hardship distributions from their retirement plans. To avoid jeopardizing the qualified status of the plan, employers and plan administrators must follow both the plan document and legal requirements before making hardship distributions. Some retirement plans, such as 401k and 403b plans, may allow participants to withdraw from their retirement accounts because of a financial hardship, but these withdrawals must follow IRS guidelines.
Source: Irs.gov, September 2022
What Qualifies as an "Immediate and Heavy Financial Need" Under Hardship Withdrawal Rules?
Do specialists have a list of the types of expenses for which distributions are deemed to be made on account of an immediate and heavy financial need from a 401k/ 403b plan under the hardship withdrawal rules? Experts from Groom Law Group and CAPTRUST answer the question.
Source: Plansponsor.com, September 2022
Hardship Distribution Amendment Deadline Is Fast Approaching
Over the past few years, several laws and regulations were passed to loosen rules on hardship distributions for 401k and 403b retirement plans. While there was an extension to give plan sponsors more time to revise plans to reflect the changes, the final day to amend pre-approved qualified retirement plans that adopted hardship distribution regulations is Dec. 31, 2021.
Source: Bdo.com, November 2021
IRS Issues Summary Regarding Hardship Distributions From 401k Plans
The IRS has updated its "Issue Snapshot" summarizing the requirements for Hardship Distributions From 401k plans. These latest updates incorporate changes made by the Bipartisan Budget Act of 2018. The updated issue snapshot exclusively focuses on the current rules and foregoes virtually all mention of the restrictions that applied to hardship distributions before 2020, which is before the effective date of the amended regulations.
Source: Hallbenefitslaw.com, October 2021
Essentials to Limit Loans and Hardship Withdrawals
Though research from Vanguard determined that retirement plan loan and hardship withdrawal activity decreased in 2020, experts say employers should consider enacting procedures to limit retirement plan distributions while still offering help to their participants in emergencies. Plan sponsors should educate their employees about distributions, and they can help their workers set up emergency savings accounts to avoid tapping into retirement funds.
Source: Plansponsor.com, August 2021
IRS Updates Internal Summary of Hardship Distribution Rules
The IRS has updated its "Issue Snapshot" summarizing the requirements for hardship distributions from 401k plans. These latest updates to the snapshot on hardship distributions incorporate changes made by the Bipartisan Budget Act of 2018, which expanded the sources of funds for hardship distributions, removed the requirement for participants to exhaust available plan loans, and directed the IRS to delete the safe harbor requirement that elective deferrals and employee contributions be suspended after a hardship distribution.
Source: Thomsonreuters.com, July 2021
Updated Issue Snapshot - Hardship Distributions from 401k Plans
A 401k plan may permit the distribution of certain contributions (and attributable earnings) on account of an employee's hardship, but only if made following rules contained in the regulations under IRC Section 401(k). This Snapshot examines the criteria for current hardship distributions.
Source: Irs.gov, June 2021
Taking Loans & Withdrawals From Your 401k Plan
During difficult economic times, you may be tempted to tap into your financial future by taking a loan or a hardship withdrawal from your workplace retirement plan. But is it a good idea? Individual circumstances vary, so there is no simple answer to this question. This piece takes a closer look.
Source: Axiaadvisory.com, June 2021
Hardship Distributions: What Retirement Plan Sponsors Need to Know About Complying With Recent Changes
Efforts to keep up with the myriad of challenges that retirement plan sponsors faced in 2020 may have caused some to overlook significant changes related to hardship distributions that were enacted before the onset of the COVID-19 pandemic. Now is the time for plan sponsors to examine whether they are complying with these changes in how they administer their plans and whether their plan documents accurately reflect these changes.
Source: Bdo.com, March 2021
Why Should Taking a Hardship Distribution Be a Hardship?
Self-certification facilitates automation of the hardship approval by the recordkeeper. However, electronic approval of hardship distribution requests through the plan website is not always the default. Thus, there continue to be instances in which neither backup nor compliant self-certifications were obtained for hardship distributions. Unfortunately, self-certification does not mean that an email or a phone call from the participant is sufficient.
Source: Belfint.com, January 2021
Hardship Withdrawals Not Widespread, Studies Say
The economic strains occasioned by the pandemic have had wide-ranging effects, and one of the actions put in place is to ease the rules concerning hardship withdrawals and loans. But availability has not made them a widespread response to economic challenges, recent studies have found. Loan and hardship distribution usage were relatively low in 2019, says T. Rowe Price in its Reference Point Annual Benchmarking Report. They report that while hardship distributions did grow in 2019, they only did so by 1.5%. They attribute the low levels to improved market conditions.
Source: Asppa.org, July 2020
Wave of Coronavirus Hardship Distributions Still Building
Low- to moderate-income retirement plan participants have mostly turned to reducing their spending levels and using credit cards to find financial relief during the pandemic; however, more will be turning to their retirement plans for liquidity, according to research from the nonprofit Commonwealth and the Defined Contribution Institutional Investment Association Retirement Research Center.
Source: Planadviser.com, July 2020
IRS Expands Definition of Qualified Individuals for Purposes of CARES Act Plan Distributions and Loans
On June 19, 2020, the Internal Revenue Service released Notice 2020-50 to help retirement plan participants affected by COVID-19 take advantage of the CARES Act provisions providing enhanced access to plan distributions and plan loans. Among other provisions, Notice 2020-50 expands the categories of individuals eligible for CARES Act distributions and loan treatment.
Source: Clarkhill.com, June 2020
Guidance for Coronavirus-Related Distributions and Loans From Retirement Plans Under the CARES Act
This IRS notice provides guidance relating to the application of section 2202 of the CARES Act for qualified individuals and eligible retirement plans. The guidance in this notice is intended to assist employers and plan administrators, trustees and custodians, and qualified individuals in applying section 2202 of the CARES Act, including guidance on how plans may report coronavirus-related distributions.
Source: Irs.gov, June 2020
New COVID-19 Rules for Hardship Distributions
If an affected taxpayer makes a qualified COVID-19 withdrawal, the funds are not limited to COVID-19 related expenses such as medical bills. They can be used for any purpose, such as food, rent utilities, paying off credit cards or helping another family member or any other purpose for that matter. The CARES Act is fairly broad as to who qualifies for a COVID-19 related hardship distribution.
Source: Belfint.com, April 2020
401k and 403b Hardship Distributions and COVID-19 Declared Disaster Areas
The Federal Emergency Management Agency has declared several disaster areas around the United States as a result of the spread of the coronavirus. Under final regulations issued in 2019, a federal disaster declaration has become one of the safe harbor reasons that qualifies a 401k or 403b plan participant for a hardship distribution, so it appears that plan participants may now be able to take a hardship withdrawal if they are laid off, put on an unpaid leave of absence or incur other expenses and losses on account of COVID-19.
Source: Beneficiallyyours.com, March 2020
Penalty-Free Distributions From Retirement Plans for Childbirth or Adoption Expenses
The new provision is optional, so plan sponsors will need to amend their plans to permit QBOADs and, as a separate option, to permit the repayment of QBOADs. Although discretionary plan amendments are due by the end of the plan year in which they take effect, the SECURE Act provides that plan amendments for its changes will not be due before December 31, 2022, for calendar year plans, or the last day of the first plan year beginning on or after January 1, 2022, for fiscal year plans.
Source: Belfint.com, March 2020
SECURE Act Video Series: Qualified Birth or Adoption Distributions
This multi-video series will provide a snapshot of retirement-related SECURE Act provisions, included in the Further Consolidated Appropriations Act, 2020. This video covers qualified birth or adoption distributions.
Source: Ascensus.com, March 2020
401k Hardship Withdrawals Can Help With Employees' Coronavirus-Related Costs
One way that employers can assist employees faced with coronavirus-related costs and expenses today (no Congressional action or immediate employer action required) is that employers can permit employees to take hardship withdrawals from their 401k plan accounts to meet coronavirus-related expenses. The employee will still need to meet the requirement that the distribution is necessary to satisfy the financial need. There are two possible mechanisms for permitting these hardship withdrawals.
Source: Stevenslee.com, March 2020
Do We Still Need to Suspend Deferrals Following a Hardship Distribution?
While the rules on resuming deferrals after a hardship distribution have recently been relaxed, we are in a bit of a transition period through the middle of 2020 where the correct way to handle situations like this can be a bit confusing. The answer varies based on timing and decisions.
Source: Dwc401k.com, February 2020
Make Sure Those Hardship Changes Are in Place
For 401k plans that permit hardship distributions, the rules changed, beginning on January 1, 2020. Make sure that your plan sponsors clients are administering their plan to the following mandatory changes.
Source: Jdsupra.com, February 2020
How to Resist 401k Hardship Withdrawals
In light of the Bipartisan Budget Act of 2018 that made it easier for participants to take a hardship instead of a loan, plan sponsors still have some options for mitigating 401k leakage.
Source: 401kspecialistmag.com, February 2020
IRS 2019 Required Amendments List Requires Plan Amendment for Hardship Distribution Changes
The IRS has now included amendments for the final hardship distribution regulations in its 2019 RAL, thus requiring affected 401k and 403b plans to be amended by no later than Dec. 31, 2021.
Source: Clarkhill.com, December 2019
Revenue Procedure Clarifies Which Hardship Amendments are Deemed Integral to a Qualification Provision
This revenue procedure clarifies which amendments are treated as integral to a plan provision that fails to satisfy the qualification requirements of the Internal Revenue Code by reason of a change to those requirements made by the recently published regulations under sections 401(k) and 401(m) relating to hardship distributions of elective deferrals. This revenue procedure also extends the deadline, applicable to pre-approved plans, for adopting an interim amendment relating to those regulations. The deadline is extended to December 31, 2021.
Source: Irs.gov, December 2019
IRS Extends Final Hardship Regulations Amending Deadline for Pre-Approved Plans
The IRS has issued Revenue Procedure 2020-09, guidance that extends the deadline for pre-approved retirement plans to amend for final IRS hardship regulations published in September 2019. The amending deadline for these plans is extended to December 31, 2021.
Source: Ascensus.com, December 2019
Most 401ks Embrace New Hardship Rules, But Participant Response Muted
Employers that sponsor 401k plans have moved quickly to incorporate new, more liberal, hardship withdrawal provisions, but most have not yet seen an uptick in participants taking advantage of the new rules, according to a new snapshot survey by the Plan Sponsor Council of America.
Source: Psca.org, December 2019
Plan Sponsors Embrace New Hardship Withdrawal Rules, PSCA Finds
Plan sponsors have moved quickly to incorporate new, more liberal hardship withdrawal provisions, but that have not seen an increase in the number of participants taking advantage of them, says a new survey by the Plan Sponsor Council of America.
Source: Napa-net.org, December 2019
Update on Regulations for Retirement Plan Hardship Distributions
In late September 2019, the IRS issued its final hardship distribution regulations. There were very few changes between the proposed regulations published late last year and the recently published final regulations. Here are the hardship distribution rules based on the final regulations. Plan sponsors should speak with their third-party administrator/recordkeepers about the new rules to ensure that the required changes are made for hardship distributions taken on or after January 1, 2020.
Source: Tri-ad.com, November 2019
Time to Review Your Plan's Hardship Distributions: Understanding 2020 Hardship Changes
On September 19, the IRS released final hardship regulations that were previously issued in proposed form on November 9, 2018. The final regulations contained substantive changes to the previously issued proposed regulations. This article provides an overview of some of the changes set forth in the proposed regulations that were retained in the final regulations and become effective beginning in 2020.
Source: Hallbenefitslaw.com, November 2019
IRS Finalizes Changes in Hardship Distribution Rules
On September 23, the IRS published final regulations amending the rules governing hardship distributions from 401k and 403b plans pursuant to changes contained in the Bipartisan Budget Act of 2018. The final regulations, summarized here, largely mirror the proposed regulations that the IRS published in November 2018, and include helpful clarifications on the changes and plan amendment timing.
Source: Groom.com, October 2019
IRS Issues Final Regulations on 401k Hardship Distributions
The U.S. Department of Treasury, acting through the IRS, issued final regulations governing hardship distributions (also known as hardship withdrawals) taken from 401k retirement plans. Aside from some clarifying details, the final regulations are substantially similar to the proposed regulations that were issued in November 2018.
Source: Compliancedashboard.net, October 2019
Treasury Changes 401k and 403b Hardship Withdrawal Rules
401k and 403b plans aim to assist employees in saving for retirement. To encourage employees to make contributions, these plans allow participants to access their savings prior to retirement in certain limited circumstances, including a severe financial hardship for the participant or his or her beneficiaries. The new regulations make changes to the process that determines whether a participant may receive a hardship withdrawal from their 401k or 403b plan account. These changes reflect recent legislative developments.
Source: Ballardspahr.com, October 2019
Final Hardship Distribution Regulations: Implementation Considerations
The IRS recently released final regulations making a number of significant changes to the rules applicable to hardship distributions from 401k and 403b plans. This article focuses on two specific issues: (1) the elimination of the six-month suspension of contributions following a hardship distribution; and (2) the revised standard used to determine whether a hardship distribution is necessary to meet the financial need.
Source: Erisapracticecenter.com, September 2019
IRS Finalizes Revised Hardship Regulations
The Internal Revenue Service (IRS) has finalized revisions to the regulations governing hardship distributions under 401k and 403b plans. The final regulations make some subtle but important changes to the regulations that were issued in proposed form in 2018 and provide some helpful clarification on how and when the final regulations apply. This article discusses those changes, summarizes other guidance and reminders in the final regulations, and lists the various effective dates and amendment deadlines for the final regulations.
Source: Bradley.com, September 2019
Need Cash? Hardship Withdrawals From Your Retirement Plan Just Got Easier
It just got easier to take money out of your 401k or 403b retirement plan. The IRS has issued final rules on hardship withdrawals that spell out a host of changes meant to cut down on red tape. Some are mandatory, employers must make the changes as of Jan. 1, 2020, and other are optional. So, how lenient your retirement plan rules are still depends in part on your employer.
Source: Forbes.com, September 2019
The Hardship Regulations are Final
On Thursday, September 19th, the IRS finalized the hardship regulations that were previously issued in proposed form on November 9, 2018. While finalized regulations often differ from proposed regulations, due to the IRS considering written comments, these final regulations contain no substantive changes. There are, however, some issues raised by the IRS in the final regulations that are worthy of note.
Source: Cammackretirement.com, September 2019
Final Hardship Regulations Published
This document contains final regulations that amend the rules relating to hardship distributions from section 401(k) plans. The final regulations reflect statutory changes affecting section 401(k) plans, including changes made by the Bipartisan Budget Act of 2018.
Source: Federalregister.gov, September 2019
Administering Hardship Distributions Should Not Be a Hardship
According to a survey on Bankrate.com, 60 percent of Americans do not have sufficient funds saved to enable them to pay for an unexpected emergency expense. The failure to save money is at epidemic levels. One way that an individual can deal with desperate circumstances (or more-than-normal financial needs, in some circumstances) is to use his or her retirement savings. The Internal Revenue Code permits distributions from retirement plans in limited circumstances due to hardship. Those IRS rules are discussed here.
Source: Ferenczylaw.com, August 2019
Helping Participants After They Have Taken Hardship Withdrawals
Participants who have taken a hardship withdrawal are nearly three-times more likely to feel "always" stressed in general and three-times more likely to have "a lot" of stress about their financial situation. A new guide published by Fidelity examines the critical topic of retirement plan hardship withdrawals, with the objective of improving the long-term financial health of those who take them.
Source: Planadviser.com, July 2019
Treasury Issues Proposed Hardship Withdrawal Regulations
Since several provisions of the Budget Act were slated to be effective as early as January 1, 2019, it is important to understand the content of the proposed hardship regulations now in order to be poised to take advantage of them once they are finalized. This article discusses the content and impact of the proposed hardship regulations.
Source: Legacyrsllc.com, March 2019
2019 Hardship Distribution Rules Are Changing
Occasionally an employee may experience a serious financial need. With no other help available, raiding a retirement plan may be the only option. Prior to 2019, employees and employers alike may have faced hurdles when wrestling with a hardship distribution. Due to new laws, however, hardship distribution rules are changing in 2019.
Source: Hallbenefitslaw.com, February 2019
Updated IRS 401k Plan Fix-It Guide - Hardship Distributions
A 401k plan may allow employees to receive a hardship distribution because of an immediate and heavy financial need. But often hardship distributions are not made properly. This document reviews how to fix the mistakes.
Source: Irs.gov, February 2019
IRS Issues Proposed Regulations Modifying Hardship Distribution Rules
The new year brings significant changes to hardship distributions under 401k plans and 403b plans. The hardship distribution changes are effective for distributions made in plan years beginning after December 31, 2018, unless otherwise specified. Final comments on the proposed implementing regulations were due on January 14, 2019, and final regulations should be issued later this year. In the meantime, plan sponsors should look to the proposed regulations for implementing guidance.
Source: Truckerhuss.com, February 2019
FAQS About Retirement Plan Hardship Distributions
Typically, retirement plan sponsors intend for the funds contained in a retirement plan to be held until the participant retires. Under some circumstances, a participant may need the money now. Some retirement plans allow participants to receive hardship distributions, though they are not required to do so. This article examines some common questions about hardship distributions.
Source: Hallbenefitslaw.com, January 2019
IRS Issues Proposed Regulations to Relax 401k Plan Hardship Distribution Rules
The IRS recently issued proposed regulations to implement changes to the rules for hardship distributions from 401k plans made by the Bipartisan Budget Act of 2018 that will take effect on January 1, 2019. The proposed changes will make hardship distributions more widely available and will ease administration of hardship distributions for plan sponsors.
Source: Hansonbridgett.com, December 2018
Podcast: Proposed IRS Regulations Affecting 401k and 403b Plans
In this episode of the Proskauer Benefits Brief, Paul Hamburger co-chair of Proskauer's Employee Benefits & Executive Compensation Group, and associate Steven Einhorn discuss the recently proposed IRS regulations addressing the hardship withdrawal rules affecting 401k and 403b plans.
Source: Erisapracticecenter.com, December 2018
What Are the Hardship Rules Following a Natural Disaster?
Starting January 1, 2019, participants will again be able to take a hardship distribution for casualty losses to a primary residence even if not in a disaster area. However, the IRS took it one step further. The new regulations now include a provision permitting hardship distributions to cover certain losses resulting from federally declared disasters. Not only will participants no longer have to await separate guidance from the IRS for future disasters, but the IRS also made this particular change available retroactive to 2018 to cover hurricanes Michael and Florence.
Source: Dwc401k.com, December 2018
Proposed Regulations on 401k Hardship Withdrawals
The Treasury Department issued highly anticipated proposed regulations governing hardship withdrawals from 401k plans. The proposed regulations address recent statutory changes made to the hardship withdrawal rules under Code Section 401k. In addition, the proposed regulations eliminate the requirement under the existing regulatory safe harbor to suspend the participant's elective deferrals or employee contributions for a period of six months following receipt of a hardship withdrawal.
Source: Employeebenefitsupdate.com, December 2018
The Proposed Hardship Distribution Regulations: Some Misconceptions
The proposed hardship regulations were issued less than a month ago, but there already appears to be a lot of misunderstanding among plan sponsors and those who work with them. This article reviews some of the biggest misconceptions.
Source: Cammackretirement.com, December 2018
New Proposed Regulations Provide Helpful Guidance on Hardship Distribution Changes
Though the regulations are only proposed, 401(k) plan sponsors should promptly consider these changes because decisions should be made on applying certain optional changes, which generally can be effective for plan years beginning after December 31, 2018.
Source: Mwe.com, November 2018
With Year-End Deadline Looming IRS Issues Much Anticipated Hardship Guidance
Plan sponsors and recordkeepers have been eagerly anticipating IRS guidance on changes to the hardship distribution rules made by the Bipartisan Budget Act of 2018, which are effective for plan years beginning on or after January 1, 2019. These changes impact 401k plans that offer hardship withdrawals, which provide active participants the ability to receive their elective deferrals prior to reaching age 59-1/2. They also impact 403b plans.
Source: Groom.com, November 2018
IRS Proposes New Hardship Distribution Regulations
The Internal Revenue Service has issued proposed regulations that would change the rules for hardship distributions from 401k and 403b plans. The proposed regulations are scheduled to be published in the Federal Register on November 14, 2018. The provisions of the unpublished draft are summarized here.
Source: Ktserisacorner.com, November 2018
IRS Issue Eagerly-Awaited Guidance on Hardship Distributions With a Few Surprises
As a general rule, there are two key components for a permissible hardship distribution: (1) the withdrawal must be made due to an immediate and heavy financial need; and (2) the amount of the withdrawal must be limited to the amount necessary to satisfy that financial need. Existing regulations provide detailed rules for how plan participants can prove each requirement is met when requesting a withdrawal. The Proposed Regulations would modify and relax many of these rules to conform to new law changes.
Source: Erisapracticecenter.com, November 2018
What Costs Can Be Covered Under a Hardship Distribution for Purchase of a Primary Residence?
How strictly does the IRS interpret what costs qualify as being associated with the purchase of a primary residence? Is there any wiggle room that would allow renovation costs to qualify for a hardship withdrawal for purchase of a primary residence?
Source: Dwc401k.com, October 2018
403b Loose Ends for 2019 Hardships
While the Bipartisan Budget Act of 2018 modified the safe harbor rules for hardship withdrawals starting in the 2019 plan year, the extent to which these modifications will impact 403b plans is still subject to open to interpretation.
Source: Ntsa-net.org, August 2018
Legislation Impact on Hardships and Loans Under Qualified Plans
This article describes recent legislative changes affecting hardship withdrawals and plan loans and some of the issues plan sponsors and practitioners must confront.
Source: Asc-net.com, July 2018
Hardship Distribution Cannot Be Taken for Repayment of Student Loans
In Information Letter 2018-1, the IRS responded to a U.S. Congressman who asked why his constituent could not take a hardship distribution from his 401k plan to pay off his daughter’s college student loans. The IRS explained that a hardship distribution must, among other things, be necessary to satisfy an immediate and heavy financial need. The IRS confirmed in the Letter that because a safe harbor hardship distribution may be made only for the prospective payment of education expenses, it cannot be made for the repayment of student loans.
Source: Drinkerbiddle.com, July 2018
Time for 401k Plan Sponsors to Revisit Your Hardship Withdrawal Provisions
The Bipartisan Budget Act of 2018 includes several changes to the rules governing hardship withdrawals from 401k plans. Because the changes apply to plan years beginning after December 31, 2018, plan sponsors should start considering their options now and make decisions regarding which changes, if any, to implement to allow plenty of time to develop and timely distribute participant communications, update procedures and re-program plan administrative systems (including coordination with the plan recordkeeper's systems) and amend their plan documents.
Source: Employeebenefitsupdate.com, July 2018
Frequent 401k Audit Finding Series - Hardship Distributions
During a 401k audit, hardship distributions are a common area where failures are discovered. The plan sponsor is often unaware that they were required to gather supporting documentation, and they have approved the distribution without verifying that an immediate need existed.
Source: 5500audit.com, July 2018
Complying With Hardship Withdrawal Rules
Recent IRS guidance and legislative changes discussed here show that this is an area where both plan sponsors and participants may still have questions.
Source: Laboremploymentperspectives.com, June 2018
Budget Act Brings Much Needed Hardship Relief for Plan Participants
The Bipartisan Budget Act of 2018 brings important relief for plan sponsors and recordkeepers for tax-qualified retirement plans. This relief includes (1) relaxed hardship withdrawal rules, (2) expanded rollover for improper federal tax levies, (3) California wildfire relief for plan distributions, and (4) a special Congressional committee to address the major funding concerns for multiemployer plans.
Source: Groom.com, April 2018
New Rules for Hardship Distributions
The Act directs the IRS to modify the 401k regulations, within one year from February 9, 2018, to remove the six-month prohibition on contributions following receipt of a hardship distribution and to make "any other modifications necessary to carry out the purposes of" the Internal Revenue Code applicable to hardship distributions from 401k plans.
Source: Bradley.com, April 2018
Congress Enacts Changes to Hardship Withdrawal Rules
The recently enacted Bipartisan Budget Act of 2018 included some unanticipated provisions that directly affect retirement plans. One such provision relates to the availability and amount of hardship withdrawals made under 401k plans. This article summarizes the impact of these new rules.
Source: Legacyrsllc.com, March 2018
Bipartisan Budget Act of 2018 Brings Changes for Retirement Plans
The Bipartisan Budget Act of 2018 was passed into law on Feb. 9, 2018 and introduces some unexpected changes for retirement plans. The most significant of the Act's changes for retirement plans reduces the existing restrictions on hardship distributions from 401k and 403b plans.
Source: Icemiller.com, February 2018
New Tax Law Causes Uncertainty for Some Hardship Distributions
The Tax Cuts and Jobs Act indirectly changed one of the safe harbor bases for hardship distributions. For tax years 2018-2025, the new law limits casualty loss deductions to those occurring in a federally declared disaster area. Plans that use hardship distribution safe harbors that reference this deduction should consider how they will address requests for losses that occur outside of a federally declared disaster area.
Source: Conduent.com, February 2018
Hardship Withdrawal Changes Under the New Budget Act
The Bipartisan Budget Act of 2018 contains changes to the ways in which hardship withdrawals from qualified retirement plans are administered. The changes reviewed here are effective for plan years beginning after December 31, 2018.
Source: Consultrms.com, February 2018
Hardship Withdrawals -- An Attractive Nuisance Becomes More Attractive
President Trump has signed the Bipartisan Budget Act of 2018 into law, avoiding another federal government shutdown. That law includes provisions that make hardship withdrawals more attractive: removing barriers, increasing available monies, and removing the suspension of contributions.
Source: Psca.org, February 2018
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